Administrations in the UK’s struggling construction sector fell sharply last month, amid signs that the UK economy could be recovering. 13 companies in the UK construction sector fell into administration during April 2024, down from 29 the previous month.
This was the lowest figure in nearly two years, since 11 construction companies collapsed in May 2022. The figures could provide some optimism for owners in the construction sector, which has been the industry worst affected by soaring UK insolvency rates over recent years.
Significant insolvencies in the construction sector last month included window and glazing giant Everest 2020, Manchester-based contractor Utilities Design & Planning (UDP) and groundworks contractor Jesmor Construction Limited.
Quoted in industry publication Construction News, RSM Restructuring Advisory partner Gareth Harris said that falling construction sector insolvencies reflected a wider drop in administrations, with Harris saying that construction is among “the larger contributors to the overall number, so it’s no surprise they were slightly lower this month.”
Harris continued that falling insolvencies were linked to inflation dropping from recent highs and added that, while interest rates remain steady, there is optimism that the Bank of England will cut rates in the summer.
Despite this optimism, construction remains one of the UK’s most fragile sectors, with Harris warning that the industry was “definitely not out of the woods yet”. This fact was reinforced by recent figures showing that construction remained the sector with the highest number of insolvencies over the past year.
4,403 construction companies went into insolvency over the past year, representing 18 per cent of the UK total. Jo Steeten, Managing Director of Aecom, said that this showed the sector remained under significant pressure, despite the easing of headwinds such as inflation and materials delays.
Steeten commented: “Spring has brought with it renewed optimism and an easing in insolvencies compared to this time last year. However, the reality is that pallid economic conditions – particularly high interest rates – continue to sap demand for new work and put pressure on contractor balance sheets.”
“And, while there is evidence that chronic materials inflation has broadly receded, sustained wage growth remains a threat to margins despite firms having adjusted their pricing models.”
She continued that construction activity was likely to be hit further by the UK’s upcoming general election and that the sector was “regrettably likely to be a leading contributor any future corporate insolvencies for some time yet.”
In order to avoid a “domino” effect of further insolvencies, Steeten added that it was vital for construction supply chains to be “transparent in their capacity to deliver work” and for the sector to maintain “its commitment to fair payment terms between contractors and sub-contractors.”
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